Financial Analysis of Walmart, Costco, and Amazon

Overview of the Firms

Task:

This paper evaluates three firms: Walmart, Costco and Amazon. It takes a look at the industry and where each of these firms business models fit into the retailer space. We look at stock prices over a three-year period against the market and analyze beta, CAPM, WACC, examining trends and correlations as to help make projections relating to the strength of these firms. We use income statements, balance sheets and cash flows to perform ratio analysis to gain an understanding of the financial performance of each of the firms. The market and financial analysis ultimately provide an in depth look at each of the firms and aid in our recommendation of each of these firms as an investment. Below is a brief overview of the firms we will discuss from Yahoo Finance:

Amazon – Founded: 1994  - 2018 Net Income: $10B

Amazon.com, Inc. engages in the retail sale of consumer products and subscriptions in North America and internationally. The company operates through three segments: North America, International, and Amazon Web Services (AWS) segments. It sells merchandise and content purchased for resale from third-party sellers through physical stores and online stores. The company also manufactures and sells electronic devices, including Kindle e-readers, Fire tablets, Fire TVs, and Echo devices; provides Kindle Direct Publishing, an online service that allows independent authors and publishers to make their books available in the Kindle Store; and develops and produces media content. Additionally, it offers Amazon Prime, a membership program, which provides free shipping of various items; access to streaming of movies and TV episodes; and other services.

Walmart –  Founded: 1945 - 2018 Net Income: $6B

Walmart Inc. engages in the retail and wholesale operations in various formats worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam's Club. It operates supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, discount stores, drugstores, and convenience stores; membership-only warehouse clubs; e-commerce Websites, such as walmart.com, jet.com, hayneedle.com, shoes.com, moosejaw.com, modcloth.com, bonobos.com, and samsclub.com; and mobile commerce and voice-activated commerce applications. It operates approximately 11,200 stores and various e-commerce Websites under the 55 banners in 27 countries.

Costco –  Founded: 1976 - 2018 Net Income: $3B

Retail membership warehouses. Strong private-label products in a range of merchandise categories. The company provides dry and packaged foods, and groceries; appliances, electronics, health and beauty aids, hardware, and garden and patio products; meat, bakery, deli, and produces; and apparel and small appliances. It also operates gas stations, pharmacies, optical dispensing centers, food courts, and hearing-aid centers; and engages in the travel business. In addition, the company provides gold star individual and business membership services. As of September 2, 2018, it operated 762 membership warehouses.

Financial Analysis and Pricing
 

The data source used to extract the monthly stock prices and returns was Yahoo! Finance. We downloaded monthly data for the past three years. The value representing each month is the adjusted close of each month’s stock price. Staying consistent in the time frame is important, though a more accurate valuation would be finding an average of daily stock prices to give a fair valuation of the stock price for each month. Stock prices as they rise and fall by the second so it is important that there is consistency in pulling the prices and keeping true to time frames help ensure market trends can still be inferred. Since we were looking to analyze patterns and trends overtime as it pertains to an investment, the adjusted close of each month is sufficient enough for our purposes.
   
Below is a graph of the periodic monthly returns for Costco, Walmart and Amazon benchmarked against the S&P500 index. The monthly returns are calculated by finding the variance each month and dividing it by the total returns for the period you are evaluating. If firms follow the fluctuations the does, it is not always a characteristic of a strong firm since one would want a firm that inversely mirrors the market, performing well when the stock market is not. The three firms we chose together vary in beta and correlations with the market, this diversification makes them a wise investment if combined in one portfolio.